InterviewM&A activity to remain strong in 2008

01 February 2008 17:37  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Merger and acquisition (M&A) activity in the global chemical industry will stay robust in 2008 despite the US credit crisis, an investment banker said on Friday.

“The volume of activity will remain healthy as the main drivers of M&A continue,” said Peter Young, president of New York City-based investment bank Young & Partners, in an interview with ICIS.

“There is still a high level of strategic restructuring, consisting of portfolio rearrangement and consolidation activity,” Young said. “Only a major economic downturn in the global economy will dampen M&A activity.”

For all of 2007, the global chemical industry completed a record $55bn (€37bn) in acquisitions, breaking the previous record of $42bn in 2006, according to Young & Partners. The industry completed 81 deals over $25m in 2007 - slightly higher than the 78 transactions in 2006 and not far from the 2004 record of 86.

“The debt crisis that started in July 2007 mainly affected the ability of financial buyers to complete deals,” noted Young. “Otherwise there was no effect on deal activity in the second half.”

The second half of 2007 saw 41 deals amounting to $40bn completed, compared to 40 deals worth $15bn in the first half.

“Contrary to many reports, there was no slowdown in chemical M&A activity in the second half of 2007,” he added.

Specialty chemical M&A valuations, which averaged a robust 10.3 times EBITDA (earnings before interest, taxes, depreciation and amortisation) in 2007 versus 10.5 times in 2006, are expected to continue to strong but flat, according to Young.

“Valuations have been strong in specialty chemicals as buyer interest remains high,” he said. “We believe valuations will continue to move sideways in the near term.”

Private equity firms, which captured 22% of the total number of deals and 17% of the dollar volume in 2007, will play a reduced role in 2008 as they struggle to raise financing, “but the idea that they are out of business is totally wrong”, Young said.

Look for further insights into M&A and financing in the 18 February issue of ICIS Chemical Business.

($1.00= €0.67)

 

By: Joseph Chang
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